LG Philips plant, profits

LG.Philips LCD had a pair of announcements today, the first of which is teaming up with Toshiba on a European LCD production plant currently under construction in Poland. Toshiba will buy a 20% stake in the plant, and get an amount of the sets produced for their use. The plant will produce three million sets per year when it opens in the first quarter of 2007. Both groups are trying to open up the lucrative European market for LCDs while reducing expenditures for new manufacturing lines by sharing costs in these new production facilities.

In addition, LG.Philips released earnings results for the third quarter of this year. While sales increased 20% over the second quarter and 1% over last year, there was a loss for the past two quarters due to the general decline in prices for LCDs. Some interesting facts about LG.Philips' sales and revenues: TVs accounted for 48% of the LCD revenues, with desktop monitors at 26% and notebooks accounting for 21%. In the third quarter the company shipping two million square meters (21.5 million square feet) of display area, with an average selling price of $1430 per square meter (approximately $154 per square foot). This is 3% less than last quarter and 11% less than the previous year.

The company is a pretty good measurement for the industry as a whole, which is balancing the fine line between building new production lines and ramping up inventory to meet the increase in demand in Europe and elsewhere for sets (as evidenced by the 20% growth in sales), while offsetting the reduction in price that those greater inventories and sales competitors bring to the market. For LG.Philips, profits will be had by reducing the costs of goods sold and making their production lines more efficient, while at the same time reducing inventories slightly so that the products are brought to market quicker. As we've mentioned in many articles in the past year, reduced costs are a good thing for consumers, and many different manufacturers are bringing new products and offerings to market, giving more choice as well as lower price. The only thing that this is bad for is the manufacturers themselves, as their margins get slimmer, and those trying to bring alternative displays to market, like SED, as the investment in existing technologies becomes so great that no one wants to spend even more on a new -- even if potentially better -- production line.